ICO Analysis:

Tokenstars ACE

The contents of this publication are presented for informational purposes only and should not be considered legal or financial advice.

DESCRIPTION

TokenStars is a sports agency that aims to disrupt the way tennis players are recruited and advertised, using a global network of scouts and promoters as well as elements of decentralized management.

MARKET

The sports agency market is relatively big and profitable, and the best players earn hundreds of millions of dollars a year. Tennis has a small market share with only three out of forty biggest companies engaged. The unquestioned leader in this particular industry is the IMG agency that operates in a wide range of countries and has the biggest network of contacts.

How does it work? In tennis, agents come to talented players when those are 13–14 years old, and it's time to decide as to whether continue the path to the big sport or not. To pursue a professional career, a junior player needs to incur costs of $100,000 annually. Most of these funds are spent on a few essential aspects of an athlete's development, such as participating in tournaments to improve ranking, joining a tennis academy or training with a coach, and purchasing the equipment. Grants and advertising contracts can cover the expenditures only partially. That's why sports agencies play a huge role.

If a junior player performs well at the tournaments, they might be offered some long-term contracts by the age of 18, which would support them financially. Soon, a junior player becomes a pro, and their commercial success depends heavily on the ranking position. The main source of a tennis player's income is prize money. On the graph below one could see that tournament gains of players holding 11–20 positions are several times lower than those of "stars." If we go further, we'll see that this gap only increases—those out of top 200 would hardly make it to $1 million during the whole career.

Earnings of top 32 athletes in different kinds of sports as of 2014

The bigger part of a sportsman's income consists of advertising/sponsorship deals which might generate 3–5 times as much money as successfully competing in tournaments. Nevertheless, stars make way more money—Roger Federer's revenue amounted to $54m back in 2016, while players from mid-top 200 managed to earn only $250–400K.

At the professional level, agencies assist players in signing advertising contracts, PR activities, and reaching other commercial goals, demanding a 10% fee for their services.

Pros:

+ In 2010—2016, the volume of tennis sponsorship payments across the world had been experiencing a steady rise (from $600M to $800M).

+ There's only one major competitor in the market, IMG, and it's focused not only on tennis but also a host of other kinds of sports.

+ According to the TokenStars team, IMG has certain flaws in the selection of players and misses out on young talents from "non-tennis" countries.

+ Unlike soccer, there's no analytical approach towards talent search in tennis at the moment. As per soccer, the InStat company provides detailed data on each player, which is then broadly used by the teams. As per tennis, agents still rely on their flair and the subjective opinion.

+ In numerous countries, the regulatory framework for tennis agencies is not as strict as for other sports.

Cons:

— An enormous income gap between "stars" and other professional players increases the risk for the agency. A player should at least be included in top 200 so that they could cover their own expenses. Moreover, tennis is considered to be one of the most expensive sports for junior players.

— IMG has succeeded in some other fields such as fashion, media, and event organization, which enables its clients to make even more money.

— IMG has its own tennis academy with a rich history that produces star players.

— IMG agents have a significant network of contacts in each country, including tennis federations that let them know if there is a new gifted player.

COMPANY

TokenStars ACE is a sports agency as well, and it will embrace the new methods of working with both young talents and professional players. The mechanism for acquiring young players will consist of the following parts: § Global scout network. Instead of a limited number of full-time employees, the company will attract analysts from the whole world, who will track local players' performance, send their applications to TokenStars, and participate in their skills assessment.

§ Global promoter network. They will promote players' social media accounts, publish articles in the local media, and attract advertisers.

§ Decentralized management. For making some key operational decisions, the company will use the community voting mechanism.

§ The TokenStars team. For the mechanism to work efficiently, the company will employ a few professional scouts and establish a small department that will be engaged in attracting brands and advertising agencies.

Apart from the primary task of searching junior players, the team will also provide professional players with advertising opportunities. TokenStars claims that ≈20% of those within top 300 do not have any contracts with traditional agencies at all and some players are ready to be signed by another company.

Scouting model

The talent search process will be carried out in a few steps:

1. A scout analyzes the data, detects the players with the highest potential, and sends the application to the company's employees. If it's approved, a scout will receive $900.

2. Upon the approval, a scout will locally assess the player's skills with the use of modern equipment and fill out a particular internal form with the preset parameters. For this report, a scout will receive $500.

3. Token holders vote to decide whether to sign a player. If the majority votes yes, a scout will receive an additional $8,500.

All payments will be made in tokens at the actual exchange rate on the day. Regarding the role of scout, it may be carried out by player's parents or coach.

What advantages does this model have?

§ In "non-tennis" countries, the total bonus of $10,000 can be compared with coach's annual salary. This fact alone is a great incentive to try out a role of scout.

§ The cost of maintaining a global scout network is far less than that of the team of full-time agents. According to TokenStars, the team of 60 agents would cost a company approximately $4M a year, not including flights.

§ A scout gathers the unique data about the player that has a significant impact on determining their potential (for voters). It allows for better scaling of the talent search, reducing the influence of the "intuition."

What disadvantages does this model have?

§ It's important not only to find a talent but also persuade them and their parents to sign a contract (in case the application is not sent by parents themselves). A professional agent has both relevant experience and expertise in behaving in such situations, knows what to say, etc. Besides, a player will personally work with them in the future.

§ At the first stage, the applications are reviewed by a few employees who themselves make a decision. The data arrives later.

§ Some subjective factors are coming into play when evaluating the player. These factors won't be taken into account when filling out the form, or the whole assessment will be based upon scout's personal point of view.

§ If parents act as scouts, their primary objective will be to promote their child no matter the skills. This may lead to the influx of low-quality applications.

§ If a scout sends the application without telling the parents (so that they don't do it themselves), the system will have players who are not actually ready to be signed.

Promoters

They'll have three responsibilities:

1. Promoting player's social media fan accounts—i.e., regularly updating them with the content about the player and widening the fanbase. If the community isn't satisfied with the promoter's performance, the latter might lose their vote. A promoter will receive $100/account per social media network.

2. Acting as PR representatives (using press kits developed by ACE) and promoting players in the local media outlets. A promoter will receive $100 per publication.

3. Attracting advertisers with the use of ACE's materials. A promoter will receive $200 if the advertiser succeeds at the first stage, 10% of the sum of the first contract, and 2% of each subsequent contract.

The white paper says that the vacancies will be published on the TokenStars website, and token holders will be given priority.

What advantages does this model have?

§ TokenStars will pay promoters only if the requirements are met, so it's an additional advantage for the company without incurring any financial risk.

§ Promoters can reach out to a significant number of small- and medium-sized advertisers who can still be useful for players.

§ Promoters will potentially cover the local press for additional PR. The point is that usually there's no much time to collaborate with those.

What disadvantages does this model have?

§ A promoter takes their time to contact an advertiser without knowing whether they will be approved by the company and whether there will be many players who would agree to work with those advertisers.

§ Attracting an advertiser (especially with a good budget) is no easy task. It's not clear what group of people could be attracted by the proposed reward and if they will be able to fulfill the task.

Taking a closer look at the first responsibility — SMM — is vital.

Nowadays, social media networks are part and parcel of any athlete's commercial success, and the TokenStars team does understand that. Using this channel might be beneficial for the agency and its players, yet there are some pitfalls.

Apart from sports achievements (which are up to the sportsman), the social media account growth depends heavily on the high-quality, frequently-produced content. This is the whole separate professional industry that is constantly developing. Behind a successful account, there is often a team. Will a $100 salary bring in the satisfactory result? Will the TokenStarts team be able to find and manage the right promoters? A sports agency doesn't usually have the same level of expertise as the SMM agency.

Also, note that not all players would agree to give access to their account to a promoter.

Decentralized management This table comprises all cases in which community voting will take place:

The voting will always be announced in advance and remain open for 48 hours. Only actual votes will be considered, so to calculate the voter's share, divide the number of his tokens by the total number of tokens of all voters.

What advantages does this model have?

§ As the team puts it, “a smart community using the analytical research will be capable of making more efficient decisions than biased sports agents that rely mainly on their inner sense”.

§ Token holders will have the chance to participate in critical decisions for the company.

What disadvantages does this model have?

§ To make a balanced choice as to whether sign a player or not, it's crucial to correctly interpret the player's data, be good at tennis, etc. There's lack of such people in the crypto community, so it's unclear whether such approach would be valid.

§ There might be no incentive for real experts to acquire tokens and vote as there's no direct benefit for them.

§ Past votings in the crypto community showed a low turnout. And while there are <20% of voters, the team's 20% share will lead to a centralized voting outcome. It's beneficial for scouts to vote against any other proposals than theirs. Provided they have the necessary amount of tokens, they'll be able to reject even those players who are really gifted.

Token role Besides the voting system, the token will be used as an internal currency. The main use cases are:

1. Up to 75% of all payments from advertisers and sponsors should be in ACE tokens (or the agency should convert the revenue to the appropriate amount of ACE to create the same effect for the market). The agency fee will always be paid out in an internal currency, and the player will be able to choose the currency. The TokenStars team assumes that players would opt for a "mixed" type because they'll thus be able to pay for current expenses as well as benefit from being part of an ecosystem. 2. Payment for exclusive services such as training with a professional player and using text or video chat. 3. Merchandise, pass to training sessions.

Some portion of the profit will probably be used for the token buyback, but no earlier than 2018.

What advantages does this model have?

§ The token is not an investment tool.

§ The ACE token has two functional use cases inside the TokenStars system.

What disadvantages does this model have?

§ The token won't be an efficient means of voting unless the company uses the buyback mechanism. Otherwise, the participants won't have any incentives.

§ Not all prospective TokenStarts ecosystem members are experienced cryptocurrency users.

Summary

Pros + In its white paper, the team provided a detailed project description as well as financial forecasts

+ The use of a proven business model

+ If the team successfully implements the mechanisms of attracting and promoting players, it will be a great competitive advantage in the sports agencies market

+ The token has two functional use cases

Cons — No technical outline of the project

— A lot of ideas are good in theory but may not work out in practice. If so, the team won't reach its goals

— The total number of contracts with talented players (for the upcoming four years) will depend on the community only once—when the ICO is finished. From there on, the budget will be limited by the profit.

CURRENT ACHIEVEMENTS

As of now, TokenStars has managed to sign Veronika Kudermetova, a promising Russian tennis player from top 200 who won 19 international championships. According to the white paper, the team is also close to signing her first advertising contract.

The team has already designed more than 50 user interfaces for the future platform. You could see some of them in the white paper, page 37.

ROADMAP

Before the ICO took off, the team had almost finished website beta and planned to roll out the final version in a year since then. The roadmap comprises several directions of development with implementation plans for each.

The team didn't specify the planned budget for each period but built a financial model with three different outcomes, which can be accessed in the white paper, page 48. The model was created for $15M raised through the ICO.

It's important that even with the pessimistic forecast, those professional players from top 200 that will be signed will be able to cover TokenStars costs. That being said, a group of 30 junior players, in which 20 will achieve nothing and only one will end up in top 50, will be able to cover initial expenses in seven years and then generate revenue for consecutive nine years.

The team plans to become a full talents management agency:

At some point, the project will let its members exchange specific sports tokens for generalized, indexed STAR tokens. Also, early adopters will have the priority in participating in new verticals— soccer, poker, hockey, and basketball.

TEAM

The team consists of 11 members (one could check out the official website to learn more). Almost everyone has a profile on LinkedIn and other social media. There are three people in top management:

Strengths:

+ The team has a solid manager and leader (Irina) who's been working in digital marketing and business development for over 15 years.

+ CTO has a vast experience in developing different kinds of web projects, and there's also one more highly-skilled developer.

+ CEO was the head of the strategy at a major media holding company for three years, with the prior experience in corporate finance.

Weaknesses:

— There's no evidence of sufficient blockchain development skills of CTO and the developer as they have no experience in that .

— CEO hasn't built the company and the team from scratch before.

— Only one member of the team is somewhat related to tennis and big sport. It's Anton, a talent search analyst. No one else has such experience.

— The team doesn't have a decentralized system expert in terms of motivating players, building the relationships, etc.

The expert advisory board consists of 9 members (one could also check the official website for more detail). The team has three advisors from the industry:

Strengths:

+ Almost all experts achieved significant results in their fields.

+ The team attracted three tennis advisors from different corners of the industry.

+ There are also three experienced advertising and marketing advisors. Although their expertise is not directly related to what TokenStars does, they may at least share some exclusive insights.

+ One of the team members is Elena, a serial entrepreneur.

+ There's also the blockchain advisor.

+ TokenStars reportedly signed long-term contracts with advisors.

Overall impression of the team

With advisors, TokenStars has good chances to launch and develop the project due to highly- qualified top management and the level of expertise in two key markets—tennis and advertising/marketing. It is, however, hard to predict to what degree each advisor would be engaged in the project as that is not entirely guaranteed by the contract. There's not much blockchain around the project, and the overall level of expertise raises certain concerns as the only advisor's most experience is related to finance.

ICO

Terms:

• Max. number of tokens sold — 99,000,000. • Price for one token — 0.0001 BTC. • Max. amount raised through the ICO — approx. $40.1M (at the 1 BTC = $4,050 exchange rate). • Main target — $7.5M. • Total supply — 165,000,000. • Market cap if all tokens are sold — $66.8M (78th place at press time). • Token distribution — 60% for ICO participants, 20% for the team, and 20% reserved for development purposes (scouts and promoters). • Currencies accepted — Bitcoin, Ethereum. • Token issuance date — November 7, 2017 (or sooner in case all tokens are sold before that date). • Listing on exchanges — 4 weeks after the ICO finishes. The most likely partnerships: Kraken, Bittrex, Poloniex, and some others.

Distribution of raised funds

The amount of money raised will determine team's opportunities. The main differences between scenarios are included in the table below.

For the first scenario ($7.5M), the team has designed a detailed funds distribution scheme.

The maximum amount of funds raised via the ICO will indeed be the most useful scenario for the company. The more players from the very beginning and the broader their opportunities, the faster the agency will begin to gain momentum.